USA End of year inventory reconciliation

[rwcormier]

We have a retail business that keeps track of our inventory through a POS. The POS does not have a FIFO aspect to it, but keeps track of inventory using the last purchased value. Would it be legitimate to take a weighted average of the last years purchase cost and value the inventory at that level and adjust the COGS accordingly?

 

[Harrigroup]

It really depends. Weighted Average inventory is GAAP. Weighted average is acceptable provided CGS is relatively stable. If there are large fluctuations, weighted average inventory will give you a very distorted profit picture.

Depending on your POS, you might be able to tweak the POS for added value. Ideally, you want cost-specific data for each sales. Perhaps you can refine your POS to give you this detail.

To get a very accurate picture of how the company is doing, you would need to consider Lean Six Sigma Accounting. LSS employs tools from Lean Manufacturing and Six Sigma to improve all accounting processes, including inventory, so that you would have a detail picture of profit.